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DoD Issues Interim Rule on Contractors’ Business Systems; Industry ‘Cautious’

Photo: Air Force

The Defense Department has issued a rule that would penalize contractors with unsatisfactory business systems — such as accounting and estimating — by withholding a percentage of payment, The Washington Post reports.

The interim rule is the third attempt to regulate contractors’ business system.

The latest iteration comes with a number of caveats. The withholding would only be triggered by “significant” deficiencies and would be capped at 10 percent. Contractors found to have only one deficient system would only be penalized by a 5 percent withholding. Finally, small businesses are exempted from the rule.

While contractors remain concerned with how the rule will be enforced, industry representatives have, so far, offered guarded optimism for the rule. After being left “outraged” and “disappointed” with the previous two proposals, Professional Services Council General Counsel Alan Chvotkin said he is “cautious” about the latest version.

“We’re putting in place a more understandable and a more appropriate set of requirements,” he told The Post.

DoD will take comments on the interim rule until July 18.

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